Deutsche Bank has issued its lowest yielding loss-absorbing bond to date, underlining how record low government borrowing costs are trickling down to the financial sector.

The coupon on the €1.25bn bond, which matures in February 2025, was 2.75 per cent, one of the lowest Germany’s largest lender has achieved on a subordinated euro-denominated bond. The issue was four times subscribed, according to the bank.

The sale underlines investors’ willingness to shoulder increasing risks in their hunt for yield as banks seek to take advantage of favourable market conditions to bolster their regulatory capital buffers.

German government borrowing costs have plumbed lows ever since the European Central Bank announced it would begin a €60bn per month asset purchase programme next month. A 10-year Bund presently yields 0.35 per cent while five-year Bund yields have descended into negative territory, in effect meaning investors pay to hold them.

The move is the latest in a string of efforts by Deutsche to improve its capital position, which has long been a source of concern for investors.

Last spring, the bank launched an €8bn capital-raising as the financial strength of Europe’s largest lenders came into focus ahead of a series of stress tests carried out by the European Central Bank.

In 2013, the lender raised nearly €3bn through an institutional placing of 90m shares, just short of 10 per cent of its then market value.

The bulk of demand for the latest bond came from institutional investors, Deutsche said.

The issue comes at a time when banks around the world have dramatically increased the amount of debt they issue, with global financial institutions more than doubling their debt issuance to $274.5bn last year, according to Dealogic,

The surge was driven by a combination of ultra-low interest rates, and incoming Basel III rules stipulating that banks must hold capital, a mix of equity and debt that can potentially incur losses, equivalent to a minimum of 8 per cent of risk-weighted assets.

Analysts expect debt capital volumes to remain robust for at least the next few years, as global regulators consider increasing minimum loss-absorbing capital levels for the biggest global institutions.

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